Whether viewed as a long time coming or part of a slow pattern, industry pros took note on November 16 as the Securities and Exchange Commission (“SEC” or “Commission”) brought cease and desist orders under the Securities Act of 1933 against Paragon Coin, Inc. (“Paragon”) and CarrierEQ, Inc. (dba “AirFox”), two companies that have raised $12 and $15 million, respectively, in token sales in late 2017. We recap what happened and why issuers should seek appropriate and vetted legal guidance when considering a token sale.

In short, the Commission said that the tokens from both companies were securities, as defined under the Securities Act of 1933. As such, the Commission ruled that both companies should have either registered their token offerings pursuant to federal securities laws or attempted to qualify for an exemption to the registration requirement. Both companies had done neither.


Paragon conducted the offering of its tokens to raise capital to develop and implement its business plan to add blockchain technology to the cannabis industry and work towards the legalization of cannabis. In connection with the offering, Paragon described the way in which its tokens would increase in value as a result of Paragon’s efforts and stated that its tokens would be traded on secondary markets.

AirFox offered and sold its tokens in a general solicitation that included potential investors in the United States. Investors purchased their tokens in exchange for other digital assets, including mobile data.


Both companies discussed the potential for profit and secondary market trading, each of which was noted by the SEC as lending to the finding that the tokens fell within the definition of a security.

As the Commission discussed in the DAO Report in July 2017, tokens, coins or other digital assets issued on a blockchain may be offerings of securities under the federal securities laws, and, if they are, issuers and others who offer or sell these securities in the United States must register the offering and sale with the Commission or qualify for an exemption from registration.

We believe that the SEC is not finished reviewing past token issuances and will continue to come out with enforcement actions. We also believe that companies looking to issue a compliant digital asset will be best served by working with reputable law firms and partners.

Ensuring Success

Undergoing a token issuance continues to be a high-risk endeavor. If you are seeking to issue a token, it is important to work with a major law firm and to take careful consideration of all the regulations that may apply to your situation. This means not only taking a look at global securities laws, but also taking a look at banking, tax or other relevant regulations.

As the volume leader in token sales, TokenSoft has been working with issuers and their legal partners to uphold requirements of securities laws in the U.S. and globally. If you’re seeking to issue a token as a security or to reissue your asset as a security, ask us how we can help.